The European Parliament (“EP”) and the Council of the European Union (“CEU”) adopted on 16 April 2014 Directive 2014/49/EU on deposit guarantee schemes (“Deposit Directive”)(thus replacing Directive 94/19/EC entirely). The purpose of the Deposit Directive is to eliminate a number of differences that existed in the laws of individual Member States with respect to the rules on deposit guarantee schemes (“DGS”). Moreover, the Deposit Directive aims to strengthen the internal market, whilst also to increase the stability of the banking system by providing clear rules on protecting the depositors in credit institutions. The methods through which the Deposit Directive aims to reach its goals are several, including better access to DGS, shorter periods for repayment of deposits, as well as clear requirements with respect to funding the DGS.
Under the Deposit Directive, each credit institution in a Member State shall be part of a universal EU wide DGS system and framework. This should in turn prevent the leakage of capital from one Member State to another one having a more favorable DGS. The Deposit Directive has also a supplementary role to the operation of Directive 2014/59/EU of the EP and the CEU on establishing a framework for the recovery and resolution of credit institutions and investment firms (“Recovery Directive”). This refers to particular circumstances where the DGS could be utilized for support of credit institutions themselves, in order to prevent their insolvency and almost certain negative effects on national financial systems.
The minimum coverage for depositors foreseen by the Deposit Directive is EUR 100,000 and the maximum is EUR 300,000. However, the guaranteeing of deposits above the minimum amount will be available only if this was also the case prior to the implementation of the Deposit Directive in the national legislation. The intention is to eventually have the same amount covered under the DGS in all Member States. Moreover, credit institutions will be in the position to set off the liabilities of the depositors against the DGS only if such liabilities were due before the date of deposits being unavailable. In light of its purpose and importance, the funds under DGS should be invested only in low-risk assets and in a diverse manner.
Act on Guaranteeing Bank Deposits
When the Deposit Directive was published in the Official EU Journal on 12 June 2014, Member States were given until 3 July 2015 to implement it in their national jurisdictions. In light of its obligations, the Bulgarian Parliament adopted the Deposit Directive on 14 August 2015. Following the recent developments in the national financial sector (the insolvency of CCB, which resulted in the Bulgarian Deposit Insurance Fund (“Fund”) paying out more than EUR 1.8 billion to depositors), the adoption of the AGBD was also seen as tool for strengthening the confidence of depositors in the Bulgarian financial institutions. Consequently, although the existing act on bank guarantees was more or less similar to the AGBD, the legislator decided on adopting a new one in order to bring more clarity and better structure to it, as well as to reflect to a maximum extent the Deposit Directive.
The Deposit Directive has built on the previous EU regulation with respect to DGS, and thus the AGBD has introduced a number of changes to the existing legislation. First of all, all banks in the Member States will be part of the program, including their branches in other Member States. Branches of banks situated in third countries will also participate in the DGS in Bulgaria, and protection for their depositors shall be provided to the extent foreseen for Member States’ banks.
To the functions of the Fund is also added the possibility for it to “participate in alternative measures for safeguarding the financial stability and preventing bigger expenses for payment of guaranteed deposits”. This is in direct correlation with the intentions and rationale behind the Recovery Directive. The measures that the Fund can offer are (i) the provision of guarantees and loans, and/or (ii) other type of liquidity assistance. There are seven conditions that should be cumulatively fulfilled for the Fund to act in such capacity.
In addition to guaranteeing deposits up to BGN 196,000, deposits related to (i) real estate transactions for living needs; (ii) marriage, divorce, work-related accidents, death; and (iii) insurance proceeds, are to be guaranteed up to BGN 250,000. More importantly, Bulgaria has decided to adopt with the AGBD only a seven-day period for payment of deposits from the day they become unavailable (unlike the Deposit Directive which foresees a transitional period for Member States to implement such short repayment term), whereas the term under the old act was 21 days. This means that in case of insolvency of a credit institution, persons and companies will be minimally affected as they will have rather quick access to their secured deposits. Unlike the abolished legislation, the AGBD foresees that payments to depositors will be made not only when there is a decision of the Bulgarian National Bank (“BNB”) for revoking a banking license, but also when (i) the BNB takes a decision determining that at present a bank is unable to pay out deposits, and/or (ii) there is a judicial act which hinders the depositors from claiming their deposits from a particular bank.
The AGBD has also introduced a new system for subsidizing the Fund. Banks will now be under obligation to make annual premium payments to the Fund. Payments are going to be proportionate to the risk the bank in question is exposed to, and will be calculated on the basis of the guaranteed deposits for the previous year. This is in contrast with the old legislation, where banks made a fixed payment, no matter their risk exposure.
Last but not least, the Fund will employ specific measures to better inform depositors as to their rights. The AGBD has provided the minimum information to be provided by the banks to their customers.
The implementation of the Deposit Directive in Bulgaria through the introduction of the AGBD is a welcome development in the strengthening of the depositors' trust in the financial system. The fact that the Bulgarian legislator has undertaken several steps to ensure that not only the Deposit Directive is enacted, but has also opted to introduce even shorter periods for payment of deposits, shows the intention to have a strong functioning financial system in Bulgaria.